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Rating Action:

Moody's confirms Johnson Electric's Baa1 ratings; outlook stable

16 Jun 2020

Hong Kong, June 16, 2020 -- Moody's Investors Service has confirmed the Baa1 issuer and senior unsecured ratings of Johnson Electric Holdings Limited. At the same time, Moody's has changed the outlook of Johnson Electric to stable from rating under review.

This rating action concludes Moody's review initiated on 27 March 2020.

RATINGS RATIONALE

"The ratings confirmation mainly reflects Johnson Electric's ample financial buffer and excellent liquidity that will allow it to navigate the industry downturn without a significant weakening in its credit profile," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

Moody's expects the company's revenue and earnings will decline only moderately in fiscal 2021, as the impact from a severe contraction in global auto demand will be partly offset by its ability to outperform the market, offer new products and cost-cutting measures.

Moody's forecasts global auto unit sales to plummet 20% in 2020 because of a significant decline in economic activities amid the coronavirus pandemic, before rebounding by around 11.5% in 2021.

Given this and an expectation of broadly stable debt levels, Johnson Electric's adjusted debt/EBITDA will remain strong at about 1.3x in fiscal 2021, only marginally up from 1.1x in fiscal 2020. Its balance sheet strength is further supported by its large cash holding of $384 million as of 31 March 2020, which represents about 80% of reported debt.

Johnson Electric's adjusted debt/EBITDA improved to 1.1x in fiscal 2020 from 1.6x in fiscal 2019, as its sizeable free cash flow allowed it to reduce reported debt to $476 million (including $60 million of lease liabilities) from $686 million the prior year.

Johnson Electric's Baa1 ratings continue to reflect the company's position as a strong, global electromechanical motion system specialist with a long track record, as well as its low customer concentration and geographical diversification. In particular, its global manufacturing footprint helps to mitigate operational disruptions under the coronavirus outbreak.

The ratings also consider its moderate scale and profitability, and high concentration in the motion subsystem product segment.

Johnson Electric's liquidity position is solid. The company's large cash balance and committed undrawn banking facilities of $155 million as of 31 March 2020 are more than sufficient to cover around $34 million of debt maturing over the next 12 months.

The rating also takes into account the following environmental, social and governance (ESG) considerations.

Auto parts manufacturing is among the 16 sectors with very high or high exposure to carbon regulation in our environmental risks heat map. Johnson Electric, as an auto-parts supplier, has material exposure to conventional internal-combustion-engined vehicles. This risk is partially offset by the company's growing R&D and cost-effective product applications that also support hybrid and electric vehicles.

Moody's regards the impact of the coronavirus outbreak on Johnson Electric's operations as a social risk under its ESG framework, given the substantial implications for public health and safety.

The ratings consider the company's prudent financial policy and the maintenance of a healthy financial profile over different economic cycles.

The stable rating outlook reflects Moody's expectation that Johnson Electric will maintain its (1) strong position as a global electromechanical motion system specialist; (2) strong liquidity; and (3) prudent financial discipline, especially in its acquisitions.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Although an upgrade is currently unlikely, Moody's would consider upgrading the ratings if Johnson Electric demonstrates (1) stable revenue growth and improved revenue contributions from its industrial segment; (2) its EBITA margin to sustain above 14%, which would reflect product leadership; (3) low debt leverage, with debt/EBITDA remaining below 1.5x; and (4) solid liquidity.

Moody's could downgrade the ratings if Johnson demonstrates (1) weakening of sales; (2) a declining EBITA margin that sustains below 8%-9%; (3) eroding liquidity; or (4) rising debt leverage, with debt/EBITDA above 2.0x on a sustained basis.

The principal methodology used in these ratings was Automotive Supplier Methodology published in January 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1170606. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Johnson Electric Holdings Limited was established in 1959 and was listed on the Hong Kong Stock Exchange in 1984. The company is a global leader in motion systems, which include motors, solenoids, switches, flexible interconnects, pumps, actuators and powder metal components. The company achieved revenue of $3.1 billion in fiscal 2020.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Stephanie Lau
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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